AbbVie Inc. (ABBV) Earnings Call Transcript & Summary

Representing the company is Mike Severino, Vice Chairman and President; and Rob Michael, who is Executive Vice President and Chief Financial Officer. Before we get into Q&A, I'd just like to say that when Cowen looks at AbbVie, we see a company that is delivering on its new product portfolio that is prepared for the HUMIRA patent expiration that has executed brilliantly since its public inception 6, 7 years ago, never having missed an earnings number, offers a 5.5% dividend yield, and sells at 8x 2020 numbers. That seems like a buy to us. That seems like a must-own stock.

So Mike, with that, the topic, of course, on everyone's mind right now is the Allergan transaction, and the company is saying you'll close in Q1. I mean Q1 is only a few more days to go. So can you talk about the latest relative to the transaction and what needs to happen to close the deal?

Well, certainly, we'd be happy to talk about that, Steve, and it's a pleasure to be here. What I would say is we just updated recently. We announced yesterday that we achieved final EU approval, which is an important step, and that we continue to make good progress with the FTC. With the FTC, we're working very collaboratively. And as I said, we feel good about the path that we're on, and that path takes us to a likely FTC decision early in the second quarter. And we just updated on that yesterday. We should keep in mind that there's also the Irish High Court approval process, which is an administrative process, that comes after the FTC.

Okay. So relative to the FTC, I mean, I think all the pieces are in place. So it's just paperwork, dotting Is, crossing Ts, or is there -- are there more important things that still have to be done?

Well, we feel good about the progress that we're making, but the process has to work its way through. And as I said, that process is on a path to lead to a likely FTC decision early in the second quarter. So we feel good about how that's going. We feel good about how we're planning for the post-close integration. We have an org design in place. We're making good progress against our synergy estimates, and we're going to put ourselves in a position where we're ready to go right after close.

So you mentioned synergy targets. Has anything changed relative to the synergy and timing expectations, first, given out last June when the deal was announced?

So Steve, we've made, I think, very good progress. We still expect to deliver greater than $2 billion of synergies by year 3. As a reminder, 50% of those synergies will come from R&D, larger portfolio rationalization as well as elimination of redundancies. About 40% from SG&A, mostly from corporate infrastructure. There will be a little bit from commercial. There are some areas of overlap, but the vast majority will come from corporate infrastructure, then 10% from cost of goods, things like leveraging procurement spend as well as limiting redundancies. But we have very solid plans. And as part of Irish takeover rules, you do have to have an independent party verify those forecasts. So we did have an outside auditor verify that before we gave that guidance. So it gives you additional reassurance that we have solid plans in place, and we've been working hard over the course of the last 9, 10 months on those integration plans and feel very good about our ability to deliver those expense synergies.

I should have mentioned at the outset, should you have any questions, just please raise your hand, and we'll call upon you. So relative to the Allergan operations, so you're obviously watching it a bit from a far, but has anything, relative to Allergan occurred that is more positive than you would have expected when you announced the transaction in June or perhaps represents more of a challenge?

So we've been monitoring their performance very carefully. They've now reported 3 quarters since we announced the deal. We're very pleased with their performance. I'd say, overall, they're tracking in line to slightly ahead of our expectations. Very large performance, very nicely, whereas CoolScultping's running a bit behind. But overall, we're very pleased.

We've been watching the prescription trends on UBRELVY, and they are eye popping. What can you talk -- how can you -- or what would you say about the trend in that particular product, if you can speak about it?

Yes. Well, maybe I'll start with the profile, and then Rob may want to add order to about the performance, recognizing that we're not closed yet. I think the drug came out with a very good profile, if you look at the label. I think it's a very strong reflection of the data package that was generated, it's been well received. I think the flexibility around use, around dosing, around a reduced concern for medication overuse headaches, which are present for other classes, not present for this class, lead to a profile that's resonated very well with physicians. And we're seeing that in the initial trajectory.

And Steve, just as a reminder, so we talked about the deal. We didn't put a lot in terms of pipeline in our deal model, but we did put in the oral CGRP. So UBRELVY's part of that. We're very pleased with the early returns. Obviously, it's still very early, but it's certainly tracking in line or slightly ahead of what we expected.

Okay. We've been polling the audience here at the conference about the COVID-19 situation. One of the questions we're asking the audience is whether or not they expect the U.S. to go into a recession or even a depression, and the majority of audience participants have said no recession is expected. But refresh our memory on how the aesthetics business works or has performed in less vibrant economic times.

Yes. I'll go ahead and take that. So I think the best model that you can look at or the best analog that you can look at is the Great Recession that occurred, obviously, a little more than 10 years ago now. And what we saw was a temporary slowdown around the time of that recession, which was obviously quite a significant event, but a very rapid return of that warehouse demand, if you will, to levels that match the trajectory that you would have expected had the preceding growth continued. So we see that it's a pretty resilient business.

Okay. What do you anticipate for ex-U.S. demand? And in particular, any effect of the virus in China?

Is that question related to...

Around aesthetics...

Overall?

Yes.

Well, so it's still early in terms of our ability to understand direct impact on sales, reporting the numbers and, obviously, we're not closed yet. But you'd expect the sort of disruption that happened in the health care system in China to lead to that sort of temporary warehousing effect that I described. But as things return to normal, as the situation returns to normal, as China already seems to be on that path, you'd expect that demand to come back. So it would follow the same sort of pattern that I described as a much larger analog of the recession of the last decade.

And we haven't given guidance yet for the pro forma company. I guess we’ll do that after we close the transaction. We'll certainly take into consideration what we're seeing in those markets and update investors accordingly.

So let's move to the heart of any drug company, and that's the pipeline, and it's one dimension that AbbVie really doesn't get a lot of credit for. So maybe you could talk about what's in Phase III? What's in Phase II that you're excited about and that you think investors are missing?

Sure. So happy to take that question. Maybe I'd sort of take a step back and say that we have invested considerable time, energy and resources in building our discovery engine and our early and our late pipeline since becoming an independent company. And the discovery engine and the quality of the pipeline we have today is very, very different than what existed in the past because of that effort. If you look at what's in our late-stage pipeline, I would break that into 2 categories. One, we have a cadre of recently launched products that are in their growth phase and doing remarkably well and these are drugs like SKYRIZI, obviously, RINVOQ, VENCLEXTA, that have growth in their lead indications, but also have significant opportunities to move into new disease areas. So this is indication expansion. But we're not talking about minor modification of labeling language. We're talking about going into entirely new disease areas, like moving from psoriasis to inflammatory bowel diseases, as an example. And if you look across those programs, there are substantial opportunities there. Between SKYRIZI and RINVOQ, those 2 agents will cover essentially all of the major indications that HUMIRA is active in today, plus an additional one, atopic dermatitis. If you look at VENCLEXTA, there are significant opportunities to move into new disease areas. And we talked on our last quarter call about work that we will be starting this year in myelodysplastic syndrome, as an example, and in transplant-eligible AML, wherein we're under accelerated approval for the ineligible population today. So that's the first component of value in the pipeline. The second major component are new programs that we're advancing to late-stage development. And there, I would point to drugs like ABBV-951, which is an innovative way to deliver Duopa-like efficacy through an insulin pump-like device. So Duopa provides tremendous efficacy, but it takes a lot to get that. You have to have surgical placement of the gastro tube. It's threaded into the small bowel. It's difficult to maintain. If we can transform that through the use of 2 novel pro drugs to something that can be delivered through an insulin pump-like device, we think that's a real very large opportunity. And we're well along the way to accomplishing that. That's a program that we advanced to late-stage development. It's now in Phase III. And I think that's one that people haven't really appreciated. The other agent I would point to is Navitoclax that's come out of our early pipeline. That's a BCL XL inhibitor. And what that allows us -- what that program allows us to do, is provide a new treatment option for patients with myelofibrosis, which is a malignant disorder of bone marrow that's associated with significant morbidity and mortality. There's really only one class of therapy approved to treat that, that's JAK2 inhibition, and that's not disease-modifying. We've shown early-stage data that demonstrates that we can get good responses in patients that are resistant and essentially relapsed/refractory to that line of therapy to JAK2 inhibition. We can drive good responses on spleen shrinkage, which is the regulatory end point, but we can also see a reversal of bone marrow fibrosis in a subset of patients and reduction in the allelic burden, so actually track the transform clone and show that we're reducing it with Navitoclax therapy. So that offers real promise for disease modification, and we've advanced that program to late-stage development. So we're already seeing winners come out of our early pipeline. And then the third component I would point to is our early pipeline in and of itself. As I said, we spent considerable time, effort and resources building that. We have a tremendous amount of data that's going to come not only this year but over the next 2 years. We'll have approximately 30 proof-of-concept data readouts over the next 3 years. So that's, on average, 10 a year, across exciting areas like immunology with our TNF steroid conjugate program and others. A lot coming in oncology, including our work on apoptosis, in immuno-oncology, and our early neuroscience pipeline. So when you look at that whole picture, I think people don't yet fully appreciate the value that's there.

Questions? Yes?

You talked about the new pipeline, the Calico partnership, you reinvested another $0.5 billion -- you expensed $0.5 billion in that write-off of investment in 2018. 24 emerging molecules come out of it. I know the Genentech people are tight-lipped, but probably right now are you going to give us some color on how that's going to impact the value-added [indiscernible] coming out of that pipeline?

So the question is on AbbVie's collaboration with Calico?

Sure. So the AbbVie-Calico collaboration, I would characterize as progressing very, very well. We've spent the time since it was originally announced and stayed building a very robust set of programs that are moving towards the clinic. Those are focused in a number of areas, but the most advanced for the immuno-oncology programs and the neuroscience programs. And so there's a robust set overall. And in 2020, we would expect to be in a position to announce 2 programs moving into the clinic. So we're making good program. So that's good progress.

This year, it's going out?

2020. Yes. So I'm not in a position today to talk about mechanisms, but they're in those areas of concentration that I described. And we would expect to be able to do that this year.

[ Len ]?

Can you comment on -- you have several other partnerships that are quite promising, especially in neuroscience, throughout the company, Alzheimer's. Could you give us some update there?

Question on other collaborations particularly in neuroscience.

Well, we have an effort on disease-modifying therapies for diseases like Alzheimer's disease and Parkinson's disease, and a number of those are through the sorts of partnerships that you mentioned. And in Alzheimer's disease, we are looking at approaches beyond Abeta and beyond amyloid. And that's not because we don't believe that amyloid is involved in the pathogenesis of Alzheimer's disease, but it's proving to be a very difficult target. And we think there are other targets that provide substantial additional promise. One of those is a protein called TAL, which is a protein that, in its pathologic form, drives a lot of the neuronal dysfunction that is associated with Alzheimer's disease. And we have multiple approaches aimed at modifying pathogenic TAL. So our most advanced is an antibody program, ABBV-8E12, which is in Phase II development. But we have other programs in addition to that, that look at the ability to deliver vectorized antibodies, for example, or the ability to knock down TAL intracellularly. And so that's one promising set of areas, and there are a number of those collaborations that are -- provide enabling technologies for that approach. We also have a focus on the neuroinflammatory response to Alzheimer's disease, and our most advanced programs there are based -- are against targets TREM2 and CD33, which are very strong genetic hits. TREM2 is a very strong genetic hit in sporadic Alzheimer's disease, and CD33 is in the same pathway. And those programs are in partnership with Alector, and those are in the clinic now. We also have earlier programs looking at the ability to clear pathogenic proteins through mechanisms called proteostasis. And we have a disease-modifying program targeting alpha-synuclein in Parkinson's disease. So there's a lot in that disease-modifying portfolio.

Yes?

We have a multi debt -- billions of debt prices [indiscernible] basis points [indiscernible] close to the bottom. My question to you, how can we leverage newer rates as opposed to the Allergan deal [indiscernible] pricing here and [indiscernible].

Yes, so...

Can you paraphrase the question, please?

Yes. So the question was around how we manage debt with -- given where rates are. What I'd say is if you take a step back and think about the amount of cash that we'll generate from this business, it allows to both support a strong, growing dividend and rapidly pay down debt. So our plan over the next 2 years is to pay down $15 billion to $18 billion. I'm not making plans to go back to the debt markets in the next 2 years. And we feel that will put our net debt-to-EBITDA leverage ratio of 2.5x by the end of next year. We're committed to continue to deleverage beyond that. If you think about the cash flow that HUMIRA generates, it should allow us to essentially pay off the incremental financing from this transaction. Probably a reasonable assumption would be in the 2023, 2024 time frame. But we've been very pleased. If you look at the results of the debt offering in November, rates are very favorable. We had strong, very robust demand for our paper. So we were very pleased with that offering. And there will be a revaluing of the Allergan legacy debt because of fair value when you establish yielding balance sheet. So I do expect we will get a favorable treatment from that given where rates are. But as it relates to our current debt, we have plans to pay down and don't plan on returning it to market.

Other questions? Yes?

For RINVOQ and SKYRIZI, is the focus of your marketing effort primarily on grabbing new patients within all the indications? Or is there any attempt to try to convert HUMIRA patients?

So the question is on RINVOQ and SKYRIZI and the strategy behind the launches. Is it meant to take HUMIRA patients or go after new patients?

So the strategy around the launch of both of those agents really flows from the product profiles that we were able to demonstrate in development and in ongoing studies, including real-world experience. And what I would say is both of these agents have shown that they are superior to HUMIRA in appropriate settings and to other comparator agents. And based on that profile, we believe that it should compete broadly. Early on in the launch cycle, and this is quite typical in immunology and in other areas as well, there tends to be more physician focus on patients who are failing other therapies. So it's the obvious first place to go. But even upfront, we are seeing -- even this early on in the launch, we're seeing some frontline biologic use with these agents as well. So I would say it's a blended strategy. We believe that based on the profile, these agents ought to be used broadly. Initially, one can expect a bit more of that to come in switch patients or failure patients. But even in these initial phases of launch, we're seeing some frontline use. And over time, we'd expect that frontline use to increase.

Other questions? So you've managed through the HUMIRA patent pressures in Europe very, very well, grew robustly throughout that entire process, and the U.S. is still a handful of years off. There are a handful of markets where HUMIRA is still patent-protected outside the U.S. Can you refresh our memory on what they are? When the patents go? And what portion of foreign sales that represents of HUMIRA?

Yes. So Steve, I in 2018, about 70% of the pre-LOE revenue went biosimilar, so that leaves 30%. About 10% of that will see biosimilar competition this year. That's markets like Brazil, Saudi, Argentina. And then in 2021, the remaining 20% will see biosimilar competition, markets like Japan, Australia and Canada.

Okay. Okay. And what is the outlook for biosimilars in those markets? Is it going to be -- are there 8 waiting to be approved? Or is it going to be more of a slow slope down?

I'd say I would expect to see a similar dynamic. If you think about in 2020, I would expect to see that similar steep erosion in those markets in the first year, more modest erosion beyond that, is probably best way to think about it. And then for the markets in 2020 that will remain patent-protected, the 20% I just referred to, I would expect revenue overall to be flat, with volume growing, offset by price.

Okay. Maybe we can move to another very important AbbVie drug, that is IMBRUVICA. And you obviously have a new competitor in Calquence. That competitor was here a day or 2 ago and said that they're getting 1 out of every 5 new patients, and that -- I think the statistic was that 60% of prescriptions are from doctors who are new to Calquence. So maybe you can just talk about the BTK market. What's going on? And how you see IMBRUVICA performing throughout this period?

Well, IMBRUVICA continues to perform very, very strongly. And we feel very confident in its profile going forward and its ability to continue to perform going forward. What I would say is this space has played out in a way that is very consistent with what we described really very shortly after the Pharmacyclics deal, which is there are follow-on BTK inhibitors. But we don't see differentiation in those inhibitors. And as the data have matured, not only from our agent but from the other agents, the story is put on a way that's very, very consistent with that. BTK inhibitors work, so following BTK inhibitors, we'll have efficacy. But they have not demonstrated meaningful differentiation or, frankly, any differentiation to our eye. And we have developed a very, very strong data package around IMBRUVICA. We have 5 Phase III data releases in CLL alone from large randomized studies; multiple studies showing an overall survival benefit; comparative data against every gold standard regimen that's used in that disease, including FCR, which had previously been considered to be the most active regimen in CLL. We showed superiority to that regimen. So we feel good about the package that we've developed. We feel good about our performance in the marketplace. We have a very strong installed patient base, and we continue to be the leader in new patient capture. So if you look at MCL, which is a little bit further along the curve in terms of their launch, the story played out as one would expect for a follow-on agent. They got some share. It's stabilized in the sort of 12% to low-teen range, but that hasn't inhibited our ability to grow. And I would expect the CLL picture to follow that same pattern.

Do you see any risk from any of the head-to-head trials that are expected to read out the next couple of years?

Yes. Well, we feel very good about the profile that we've demonstrated. We feel very good about the coverage of the pathway that we can provide with IMBRUVICA. So we wouldn't have any expectation that an agent would be able to show superiority against IMBRUVICA.

I think the company's guidance for IMBRUVICA, and I'm doing this from memory, so that could be dangerous, but I think it's $7 billion in 2025. Is that the number and are you still on track for that?

Yes. We're still on track. I think our most recent guidance, we talked about hematology/oncology in total of greater than $13 billion, but IMBRUVICA was obviously a part of that, and so we are on track for those numbers.

Okay. Let's move to the other part of that, that being VENCLEXTA. And so last week, there was some news on the first line of AML indication in the study that read out. Just put that into perspective for us as we think about VENCLEXTA's future. And I think the number there was $6.5 billion in 2025, so maybe you could talk about that.

Sure. So I'll talk about the overall picture and some of the data that come out, and then Rob may want to add a point or 2. So last -- so it's important to keep in mind that in AML, we're under accelerated approval in the transplant-ineligible population, we had 2 large -- or 2 Phase III studies. One is called VIALE-A, where the comparator is azacitidine. That's the larger and the more important of those because that's the regimen that choose most broadly in the U.S. and in other geographies. The other is about VIALE-C against ARA-C as a comparator. That study was not as large because there are limitations of the numbers of patients and the sorts of patients that you can randomize to ARA-C. So we updated on that ARA-C study. At the primary end point, we did not have a significant p-value for overall survival. Although with extended follow-up, the hazard ratio continued to improve and had confidence intervals that excluded 1 at the upper bound. So very consistent with activity. We showed very good activity in the observed numbers on response, so complete response or a complete response with incomplete hematologic recovery. So overall, we view the data as very consistent with the effects that we have shown in other settings in AML. And it doesn't change in any way the indication. We've discussed the data with regulators. We're still on the same path that we thought we were on before.

Okay. Questions from the audience? [ Tom ]?

Following the fixed time line or fixed time frame dosing of venetoclax and IMBRUVICA, if that continues to be successful, would that stop or cause to fall? Instead of taking the drug for many years, all the CLL patients [ will probably cease ] to take the drug from there and go into remission?

So the question is about basically treating to remission and then stopping therapy ending, right?

Well, we wouldn't view it as something that would inhibit IMBRUVICA's ability to grow because the CLL patient population is very heterogeneous. And there is a substantial group of patients where monotherapy future progression is the preferred option for physicians and patients. You can think of older patients with multiple comorbid illnesses, multiple meds for other reasons. The simplicity of that regimen is very appealing and the long-term results that can be delivered with that sort of therapy is very appealing. There's another set of patients where treatment intensification and fixed duration, finite duration course of therapy, is already used today. These are the sorts of patients that are getting FCR today or in the past. And some of those treatment intensification regimens allow us to expand into that population. So we view the 2 regimens as very complementary. We view them as a portfolio that allows us to cover a broader swath of the CLL patient population. But we don't see it inhibiting the ability of IMBRUVICA to grow.

So you're saying you don't expect a fixed time line to take over both CLL...

We think it expands the patient population in which we can compete, and therefore, it doesn't inhibit the ability for IMBRUVICA to grow. So we don't think it's going to go all for one or all to the other.

Is there any special pricing strategies that can be [indiscernible] for both with RINVOQ and SKYRIZI so that the 23 HUMIRA [indiscernible] doesn't have to [indiscernible] impact on the structure of growth?

So the question is on pricing strategies around SKYRIZI and RINVOQ to temper the HUMIRA patent expiration.

So if you look at RINVOQ and SKYRIZI, what I would say is the most important aspect of those programs is having the run time that we have ahead of the loss of exclusivity of HUMIRA to really establish them as a new standard of care. And the profiles that we have demonstrated enables them to be established as a new standard of care. And it takes a certain period of time to really allow that to flow through practice patterns, guidelines, et cetera. And so what I would say is that and the runway that we have is really our primary strategy to make sure that we're in the best shape, that we can -- best position that we can be in, in 2023 and beyond. And that's all proceeding very, very well. SKYRIZI is actually ahead of our expectations. RINVOQ is performing very, very well also, not quite as far along in the launch cycle but also performing very, very strongly early on. So that would be our primary strategy.

And the fact that you have superiority data certainly helps.

Yes. We have superiority data across multiple comparators. So with SKYRIZI, we compare only to HUMIRA, but to STELARA and more recently to COSENTYX, which is considered very prominent high-efficacy agent, where we showed very substantial improvement in PASI 90. And in RINVOQ, we're the only JAK inhibitor that's shown superiority to HUMIRA and RA at its approved dose and have very, very strong overall data package as well.

And the profile of SKYRIZI and RINVOQ are why we got this rapid access. That's what drove that.

So we're down to only seconds now. And -- but I would like to ask -- so last year, in the wake of the announcement of the Allergan transaction, a very, very frequent question was about opioid risk and BOTOX generics and BOTOX-branded competition. And I think you did a great job of addressing those issues at the time. The question for you here is, has anything changed in any regard on those questions?

No, no. We've been watching it very closely, and we'd say we think Allergan did a very nice job in terms of BOTOX competition. We've looked at their strategy there. If you look at their growth in 2019, it was very strong. It wasn't really impacted by the competition. As we looked at various liabilities, nothing has changed from the views that we expressed at the time of the close -- or the time of the announcement.

Great. So we are out of time. I'd like to thank the top management of AbbVie for a great rundown, and thank you for your efforts to be here.

Thanks.